Fed's monetary policy lodestar comes under attack

Washington

MILTON Friedman put a nail in the coffin of the original version of the Phillips Curve 50 years ago when he correctly foresaw that the US could simultaneously suffer from high unemployment and lofty inflation. A growing number of economists are now trying to lay to rest Phillips Curve 2.0, still in use at the Federal Reserve and other central banks to guide monetary policy.

At the Jan 5-7 annual meeting of the American Economic Association (AEA) in Philadelphia, economists questioned the usefulness of a cornerstone concept in mainstream economics that links changes in inflation to fluctuations in joblessness.